Business partner buyout guide

There can be a number of reasons why you want to buyout a business partner. You could have a partner who wants to retire but also wants to cash out his stake in the business and live the golden life. Or, your partner is not a good business partner. Someone who does nothing to improve your business and wastes a lot of money. Sometimes you realize the credentials and/or competency of your partner are not what you thought they were in the beginning, and it becomes imperative to cleanse them from the company to find true success. These are all good reasons to take back control of your company.

Things to Consider When Buying Out a Partner

The most important thing to understand is the wording in your Articles of Organization. How much of the company is yours? Do you have controlling interests? This is less of a factor if your partner is retiring or if there is text in your Articles of Organization regarding each partner getting the ‘first right of refusal’ to purchase the other partner’s stake. However, if it is any other reason, you must see if it is possible to buy or force out your partner.

If you have controlling interest, you can force your partner to no longer take part in the business on a day to day basis. This does not necessarily force him to sell unless you have wording in your Articles of Organization on gross negligence or other clauses.

Not Doing a Full Buy Out

Some partners might not want to sell out completely, only a part of their equity in the company. You can restructure your partnership agreement however both parties want. This includes equity shares, voting rights, board of director seats, and say on the day-to-day operations.

Sometimes this restructuring will help limp things along until you can finance the full buyout. Sometimes a partner will do a slow buyout based on sales. You will not need financing on this. The sell agreement might include a percentage of the company’s revenue each month as a payment, up to a total agreed upon amount by all partners. Once it is paid in full, at that point all shares will be handed over to the purchasing partner.